Industrial Forest Company Violations and Its Financing

Sunday, February 1, 2015

Indonesia - The expansion of large-scale industrial forest in Indonesia began in the mid-1980s due to the increasing demand of timber for industry and the decline in wood supply from natural forests. But the extent of industrial forest concession permit is not balanced with the planting performance and also the compliance of Timber Legality Verification System. Beside that, it also has implications for forest conversion activities and conflicts. In general, if we look at the investment and financing of the forestry sector, it can be seen that the development of the forestry industry, especially in Indonesia, is still constrained by capital. That’s why it needs forestry financing institutions.

This study found that there were still many conflicts in industrial forestry involving several companies that were members of APRIL Group (PT SSL, PT SRL, PT SBI), for instance land conflicts and criminalization of local residents. On the oter hand, investment from banks in the form of credit to APRIL group still continues. The Timber Legality Verification System which should be complied by the company was still found violation. The largest portion of financing for the company came from foreign banks with the largest creditors, namely Industrial and Commercial Bank of China (700 million US $). National banks also financed this industrial forestry company, which were Bank Mandiri (471.26 million US $), BNI (150 million US $) and Bank Mega (30 million US $). This study also found that in terms of green banking policy, the majority of European banks already have clear policies and provisions and must be obeyed by their customers if they want to be given financial assistance, while banks in Asia, especially the Indonesian national bank still have not implemented a similar policy, except BNI.